Business Analysis: Merck faces senators over Vioxx drug deaths

Pharmaceutical giant's survival is in the balance

Raymond Gilmartin, the embattled chairman and chief executive of Merck, faces one of the biggest challenges of his career tomorrow. He must try to persuade a specially convened committee of senators that the US drugs giant acted as swiftly as possible when it withdrew its best-selling arthritis painkiller Vioxx in September due to the increased risk of heart attacks among patients taking the drug for 18 months or more.

Raymond Gilmartin, the embattled chairman and chief executive of Merck, faces one of the biggest challenges of his career tomorrow. He must try to persuade a specially convened committee of senators that the US drugs giant acted as swiftly as possible when it withdrew its best-selling arthritis painkiller Vioxx in September due to the increased risk of heart attacks among patients taking the drug for 18 months or more.

At stake is the very survival of this $30bn company, which until a few weeks ago had a reputation as one of the most ethical corporations at the forefront of drugs discovery.

Now, Merck is under investigation by the Securities and Exchange Commission and the Department of Justice. The issue is whether Merck, which made $2.5bn (£1.35bn) a year from sales of Vioxx, was aware of problems with the drug for years but did not act on them, causing deaths and suffering among the 20 million Americans, and many more abroad, who used it.

Lawyers preparing class action suits are also massing, and Wall Street analysts have estimated Merck could have to pay out $10bn or more in court actions brought by patients who have suffered from adverse cardiovascular conditions as a side effect of taking Vioxx.

Mr Gilmartin, who was due to retire in two years' time after 12 years at the helm of Merck but now might have to step down sooner, said this week he can "sleep at night" because his company acted "ethically and responsibly" in its oversight of Vioxx.

Yet persuading the senators, regulators and the lawyers circling Merck could be tough. Internal company documents paint a picture of Merck executives who were concerned about the possible risks of the drug that was meant to be the new driver of growth for the company at a time when other major patents were expiring.

Particularly embarrassing for Merck is a marketing document called "Dodge Ball Vioxx". Lawyers preparing cases against Merck say it was compiled to help Merck's sales force duck doctors' questions about the risks of heart attacks and strokes from Vioxx.

There is also a string of reports and studies dating back to soon after Vioxx was introduced in 1999 showing the drug, and its class of painkillers known as Cox-2 inhibitors, was controversial. Some experts argue Cox-2s' ability to control pain is no better than medications such as aspirin that they replaced. The critics have added that worrying signs of side effects of some Cox-2s such as Vioxx were greater than the ulcers and other stomach problems associated with the older generation of drugs.

One particularly damning comment came from the Food and Drug Administration, the watchdog responsible for monitoring all medicines sold in the US. Internal FDA memos, reported in The New York Times, show one of the body's own doctors, David Graham, estimated Vioxx had been associated with more than 27,000 heart attacks or deaths linked to cardiac problems.

Mr Gilmartin will use the high-profile hearing on Capitol Hill to emphasise that internal documents have been taken out of context, and that previous studies were inconclusive. Merck argues, for example, that a key study in 2000 called Vigor which showed Vioxx patients had more heart problems than those taking a different drug, called naproxen, was unreliable because the results were skewed by the fact that naproxen actually had a better than average effect on the heart.

Mr Gilmartin can also point out that Vioxx was withdrawn immediately after Merck completed a study, begun in 2001, which found that 15 out of 1,000 patients taking the drug each year suffered from heart attack, stroke or blood clots, compared with 7.5 per 1,000 taking placebo. The recall was the biggest ever by a drug company and has plunged the industry into an orgy of soul searching. It raises questions over the balance of risks and rewards required when deciding whether to ask regulators to approve a new drug.

The whole affair has raised the threat of a tougher regulatory regime. With giant drug companies needing to invent multi-billion selling drugs if they are to maintain sales growth, products for chronic pain, mental illness and heart disease are the most lucrative, since patients come back month after month for prescriptions. Lehman Brothers estimates more than half of all drug sales are for chronic conditions.

But if the Vioxx debacle means regulators begin to require longer studies before approval, or more thorough monitoring after approval, then fewer such blockbusters are likely to be developed.

While Merck's shares have lost 40 per cent of their value since Vioxx was withdrawn, some lawyers say its situation might not be as dire as it seems. A voluntary withdrawal rather than one enforced by the FDA will probably help Merck's case when the string of class actions start to come to court, probably early next year.

People bringing cases will also have a tough job proving that Vioxx has been the direct cause of relatively common heart problems. It is tougher job, say, than those waging a campaign against Wyeth, the marketer of the diet supplement fen-phen, which is being sued by users for bringing on the unusual condition of heart valve damage.

Merck's future nonetheless looks uncertain, and there are plenty of analysts predicting the company which once rejected mergers as a threat to its prized system of research and development might yet have to accept a deal. One obvious candidate as a partner is a fellow US company, Schering-Plough.

Yet, with Merck's liabilities almost impossible to quantify, Vioxx could turn out to be its own poison pill. Mr Gilmartin said earlier this week that he didn't "think in terms of legacies". Perhaps it is just as well.